Homeowners turn to cash-out refinancing to take advantage of big gains in home equity

Published: Wednesday, August 13, 2025 at 4:10 pm

Homeowners Capitalizing on Home Equity Through Refinancing

Homeowners are increasingly turning to cash-out refinancing, leveraging substantial gains in home equity despite elevated mortgage rates. Data from ICE Mortgage Technology reveals that cash-out refinancing activity reached a nearly three-year high during the April-June quarter.

In a cash-out refinance, homeowners borrow more than their outstanding mortgage balance, pocketing the difference. These funds are often used for debt consolidation, home improvements, or significant purchases. The average cash-out refinance in the second quarter saw homeowners extracting $94,000 in equity, which increased their monthly payments by $590. Simultaneously, the average interest rate on their home loan rose by 1.45 percentage points.

To qualify, homeowners typically need at least 20% home equity, a minimum of six months of homeownership, and a credit score of at least 620. Borrowers who pursued cash-out refinancing in the second quarter had an average credit score of 719.

This trend is fueled by years of rising home values. The median price of a previously occupied U.S. home reached a record high of $435,500 in June, a 48% increase over five years. Total homeowner equity in the U.S. hit an all-time high of $17.8 trillion in the second quarter, with $11.6 trillion available for refinancing. Cash-out refinances constituted approximately 60% of all home loan refinances during the quarter.

While cash-out refinancing can provide financial flexibility, it also carries risks. Borrowers take on a larger loan, potentially at a higher interest rate, and often extend their repayment term. This can be problematic if the borrower struggles to repay the loan, potentially leading to foreclosure. Home equity lines of credit (HELOCs) may be a better option for some, offering lower interest rates without relinquishing equity.

The housing market has been in a sales slump since early 2022, due to high mortgage rates. While prices have continued to rise nationally, the rate of growth is slowing or declining in many areas. This has led to a slowdown in home equity growth, with tappable equity decreasing in nearly one-quarter of U.S. markets. Furthermore, approximately 1% of homeowners with a mortgage now owe more than their homes are worth.

BNN's Perspective:

While cash-out refinancing offers homeowners a way to access their equity, it's crucial to weigh the benefits against the potential risks. Borrowers should carefully consider their financial situation and explore all options, including HELOCs, before making a decision. Prudent financial planning and a clear understanding of the terms are essential to avoid potential pitfalls.

Keywords: cash-out refinancing, home equity, mortgage rates, refinancing, home loans, debt consolidation, home improvement, credit score, housing market, home prices, foreclosure, HELOC

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